The Truth about Wholesaling!

891 Replies

I just saw a similar deal from a wholesaler, it was a condo in Newhall, the numbers almost match your previous experience...They were also comp'ing out 3 beds to this 2 bed model to inflate the ARV. Clearly the photos showed far more than 10k in repairs. I made a lowball offer and didn't hear back. Lots of wholesalers today, even the companies who used to be good sources for deals 1-2 years back are not getting the low priced deals they used to so anything they wholesale out is high priced, very low returns- 30-40k profit on a 500-600k PP. (talking LA market). Not worth it to me personally unless its clean and show.

I'm looking to get into wholesaling and this does not sit well with me. It's never a good idea to try and markup your price so much and "pull one over" on someone else. That is just simply not good business. Glad you did your due-diligence and took a hard pass on the deal. 

Originally posted by @Malhar B. :

Honestly, I think the issue is that so many of the so-called "gurus" preach wholesaling as a great way to get involved in REI, but they don't talk about marketing, etc.

A good wholesaler is good because of what Charles said above, but to take it further, they're good at marketing and finding the deals. ALL the time, I have wholesalers in the area sending me deals they got off the MLS--negotiated it down from list about $10K and then marked it up $15K-20K. Why would I want an MLS deal that I have access to and then pay $10K above list price??

There is no logic in the thinking and although I do believe the MLS is a decent lead source, it is also the most competitive and easiest to access. I've purchased 2 properties from wholesalers out of the hundreds I've seen, which says a lot about wholesalers, in general. The sad part is the good wholesalers sometimes get a bad rap because the bad/lazy ones don't know what they're doing.

 I, too have been leery of wholesalers and prefer just a solid REA, but how do you know if a wholesaler is reputable?  I realize this is a simple question for a complex answer, but I thought I would throw it out there if anyone wants to educate me.  :) 

Great post, it sounds like you ran into a scammer that was preying on people who don't do their due diligence. It could be that they are just inept, but if you know for a fact that someone is scamming, give their name to other investors in you're area so that there are less people ruinging the reputation of wholesalers

@Julie Sisnroy I think there's all sorts of ways to spot a 'legit' wholesaler, and the easiest way is just to have a phone call with them. You can generally 'just tell' if someone actually knows their stuff or is just bluffing.
In addition, I fact-check their ARV's and rehab costs, and if they seem accurate, there's a good chance you're dealing with someone experience and knowledgeable.

Truly awesome observations of regarding noobs getting out there and just kinda of cowboying their way through the process. I have been a beginning investor myself for two plus years. Starting out I was reminded to be diligent in pursuit of true numbers in my deals. Also, I was admonished to be honest with sellers, buyers, GC's, subs and the like. I have only done a single deal which I'm still waiting for my wholesale fee on a JV deal (it has been months as of this writing). Still, I remain steadfast in my principled and systematic way of being and investor. I chose this journey, it has not been as fulfilling as I'd hoped but 2021 is still my year. Thanks for the insights. They mirror what I've been learning not to do as well as what I should do.

I've been studying REI to death and at some point I'll have to pull the trigger and go from studying to taking action. I'm a bit shy and don't have tons of connections. I thought to myself, "I'll find a wholesaler." Thank goodness for this post - it's 10 years old and still getting traction! I'll have to find another way.

Originally posted by @Mallikarjun Reddy Pateel :

@Will Barnard

I like your advice, I’m planning to start in Wholesaling. How do i get the Rehab costs? Do i take contractor with me while touring?

Imagine your a contractor. Would you be willing to come out to a property I may or may not buy and in which you likely will not get any work from it and spend your time providing a bid? It takes time and practice but you really need to know how to estimate rehab costs on your own and I have written in many threads in full details of how to accomplish this task.

@Will Barnard  Good post. It sounds like they have issues with accurate underwriting, rehab costs, and comps. Ouuuf. Not great for a wholesale company.

With that said, as an investor, I never look at rehab numbers or ARV from a wholesaler. We always run our own rehab budgets and ARV comps.

When you receive a deal from a wholesaler, my recommendation is to first pull as-is, cash sales, within a year and quarter-mile to determine if their price is in line with recent sales to investors. If it is, I'd then pull ARV comps and visit the property to determine my own rehab budget. If you consistently see deals from the same wholesaler priced well above as-is cash sales in the area, I'd request to be removed from their list.

As a wholesale company, my team and I don't provide rehab costs. We only work with investors that can analyze the rehab numbers themselves. Some of our investors do rental grade rehabs, and others do top-notch rehabs. Everyone's cost of labor differs as well. We'd be doing a disservice if we provided rehab numbers. We provide ARV comps within a year, quarter-mile, within 10 years above and below the build date, property type, etc. Sometimes we have to expand those parameters when there are no recent sales, but we show that to our investors.

Our focus is on finding great deals that we offer below or in line with other as-is cash sales in the area. For us to make any money, we have to get it under contract below that price.

@Will Barnard i think all business should be conducted with integrity. I’m new the wholesaling real estate and have not closed my first deal. I am a Data and Analytics Specialist so I let the numbers talk for me. I think this is why I am so nervous about actually making an offer because I don’t want to seem like I’m trying to be greedy or getting over on something. I want my deals to be fair. For example, if the profit for the cash buyer after rehab is 25K I would prefer my assignment fee to be around 5k or 4K..... do y’all think that is a good mindset to have?

I'm a new wholesaler myself, and it makes me very sad that there are people out there doing that. I make it my upmost priority to to always uphold my morals and values in every facet of my life, especially my business. Just know that not every wholesaler is like that, and there are people that would never put a price tag on their ethics and values just like myself. I wish you the best of luck on your real estate journey, and I appreciate you sharing your story. I believe there's a piece of the pie for everyone. There's no need to conduct business in that manner. Best wishes to you my friend. I hope you continue to be successful and thrive.

Originally posted by @Mike Kehoe :

@Will Barnard Good post. It sounds like they have issues with accurate underwriting, rehab costs, and comps. Ouuuf. Not great for a wholesale company.

With that said, as an investor, I never look at rehab numbers or ARV from a wholesaler. We always run our own rehab budgets and ARV comps.

When you receive a deal from a wholesaler, my recommendation is to first pull as-is, cash sales, within a year and quarter-mile to determine if their price is in line with recent sales to investors. If it is, I'd then pull ARV comps and visit the property to determine my own rehab budget. If you consistently see deals from the same wholesaler priced well above as-is cash sales in the area, I'd request to be removed from their list.

As a wholesale company, my team and I don't provide rehab costs. We only work with investors that can analyze the rehab numbers themselves. Some of our investors do rental grade rehabs, and others do top-notch rehabs. Everyone's cost of labor differs as well. We'd be doing a disservice if we provided rehab numbers. We provide ARV comps within a year, quarter-mile, within 10 years above and below the build date, property type, etc. Sometimes we have to expand those parameters when there are no recent sales, but we show that to our investors.

Our focus is on finding great deals that we offer below or in line with other as-is cash sales in the area. For us to make any money, we have to get it under contract below that price.

 I have heard this same (or very similar) explanation several times in the past. I question it as it seems impossible to conduct business this way. First off, if you as the wholesaler do not know what the rehab numbers should be, how can you possibly make a confident offer to a seller? As a flipper, you need to know 3 main things before making an offer. 1. The exit value 2. The rehab numbers 3. The local market conditions. Without knowing those 3 things, you are adding risk that could otherwise be mitigated. If you know the exit value number and the ask price from seller is X, without knowing how much you need to put into the deal to get it to that exit number, you can't make the offer confidently. I realize some investors will have lower or higher materials and labor costs depending on their skill level, buying power, experience, network of contractors and sub contractors, etc. but you certainly need to have a decent handle on an estimated rehab budget and at bare minimum, a scope of work identified for others to price in their own rehab numbers.

Where I have been frustrated time and again in dealing with wholesalers is their standard boiler plate numbers. So many times I would see wholesalers list just about every one of their deals with the same exact rehab budget. Obviously it was just a plugged number and does more of a disservice than it does help anyone.

Wow, what a horror story!!! I'm learning how to be a wholesaler and I want to have all those qualities so I can help buyers get good deals and have zero hassle.

@Will Barnard I am a handyman, former Marine, going to school for construction management and can talk to anyone. I feel like I have so many assets that would make me a good wholesaler, but I just get the impression that it's attracts some sleazy folks.

Any recommendations on where I should direct my focus?

Tell me something..  If a seller found out on public record that his property sold for $500,000 more then what their offer was don't you think they will cause havoc especially if brokers are involved?

very good information. I'm glad that you were able to dodge a bullet here. I am copying the "To be a true wholesaler you need these 3 main ingredients:" part and putting it in my notes! Thanks.

Originally posted by @Patrick Shaw :

@Will Barnard I am a handyman, former Marine, going to school for construction management and can talk to anyone. I feel like I have so many assets that would make me a good wholesaler, but I just get the impression that it's attracts some sleazy folks.

Any recommendations on where I should direct my focus?

That is tough to say, but no matter which investment or business strategy you intend to go with, focusing on education for that focus should be your #1 priority. Wholesaling is a business, it is not investing. If you want that to be your focus, learn your market, the numbers, and the legalities of performing your transaction (both morally and legally). Buying and holding RE should be just about everyone's goal as flipping or wholesaling income stops once you stop and holding is one of the greatest hedges against inflation, especially when responsible leverage is applied.

It ( wholesaling ) will be gone within 3 years.

It is practicing ( Real Estate ) without a license. 

No meat on any bones in Phoenix. ( no deal worth looking at)

If it goes to the list, then it is not a good deal.  They always have 2-5 buyers that get the best deals!  Always!

They would sell their Mother for a buck!!!